Banks' Trading After the Lehman Crisis - The Role of Unconventional Monetary Policy

Isabel Schnabel and Johannes Tischer

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: Based on a unique trade-level dataset, we analyze the proprietary trading reaction of German banks to the Lehman collapse and the subsequent unconventional monetary policy measures in 2008. After the Lehman collapse, we observe that market liquidity tightened. However, there is no evidence of broad-based fire sales in the German banking sector. Instead, we observe a flight to liquidity. The European Central Bank’s unconventional measures had a strong impact on banks’ trading behavior by inducing shifts towards eligible securities and reducing pressure on market liquidity. This suggests that the unconventional measures helped stabilizing the financial system after the Lehman collapse.

Keywords: Proprietary trading; fire sales; flight to liquidity; Lehman crisis; market liquidity; unconventional monetary policy (search for similar items in EconPapers)
JEL-codes: E44 E50 G01 G11 G21 (search for similar items in EconPapers)
Pages: 44
Date: 2018-08
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac, nep-mon and nep-mst
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Citations: View citations in EconPapers (2)

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Working Paper: Banks' trading after the Lehman crisis: The role of unconventional monetary policy (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2018_036

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